04/01/2021 — April Fool

Willie Witten
Apr 1, 2021 · 3 min read

Near the end of the ol’ floor days, a small minority of traders routinely supplied the vast majority of markets for customer-quoted prices in the VIX pit. The advent of negotiated trading (where brokers proffer hypothetical offers to secure their cut of a marketable order) permitted non-market-making traders to wait in the wings and reap the benefits made possible by the work of risk-taking market makers willing to actively price hundreds of securities.

Needless to say, I vehemently disliked this system and I frequently found myself awash with enough anger and frustration that I would occasionally “go on strike.” This didn’t entail shirking of my work duties with respect to my employer at the time. I still traded as much, or nearly as much as before I absolved myself of my market-making responsibilities. I just wouldn’t make markets.

I tried this approach a couple times. Each attempt lasted about a week before I realized something very important. Yes, by unburdening myself from the hassle of constant price quoting and the back-and-forth shouting match that is pit trading, I enjoyed a far more relaxed trading experience. However, this trading-lite foray brought forth another unexpected revelation. When you don’t participate in the market, you lose touch with the market.

Being in touch with the market requires more than a few cursory daily checks on levels and news items. That level of involvement will suffice for people who are casual investors, but falls far short of what it takes for most active traders.

I write this blog, in part to have an extra reason to stay on top of market activity. After a flurry of activity a couple weeks ago, the market stagnated, and with the exception of a couple poached futures contracts, there was little to trade. Volatility was low, and with it, the chances to enter into favorable options positions. So, I started to pay less attention to the market. I checked it less frequently, and I didn’t write about it for close to three weeks. I went on strike.

Yesterday I convinced myself to pay a bit more attention to my screens. I frequently scanned the weekly option series and read through a few mundane newswire blurbs about NFTs and stimulus package woes. In the midst of my agonizing discipline-imposed boredom, I stumbled upon an absurd bid for an option that was ridiculously far out of the money. I made a trade and then called my trading buddy to let him in on the little gem. It wasn’t anything to celebrate, and it certainly wont show up in any meaningful way in the end of year P&L, but it served as a reference point.

“These are the type of nuggets in this market.”

“Here are the new appropriate prices looking out 3 days, 5 days, 8 days.”

Just checking out the DJIA or the S&P movement doesn’t provide any detail or nuance. And while that works for a market with a touch of volatility, a bullish, more plain-vanilla market requires a bit more technique to navigate and make profitable.

The modern myth that says everyone can be a trader rears its ugly head once again. Luckily in my case, I know enough (I hope) to know when I’m in a position where laziness only costs me a few missed opportunities. Houseguests and burnout can provide fair reasons for being less vigilant than I should have been, but it doesn’t change the fact that trading, when done correctly, is a full-time occupation.

That’s a lesson I have yet to learn. Once a fool, always an April Fool.

Fifth Grade Finance

For those of us who like trading but hate working